One number on your tax return has special importance. You'll find it at the bottom of the first page. It's called "adjusted gross income" or AGI for short. Why is it important? Because your AGI controls your qualification for numerous deductions and credits. It can even affect your eligibility for retirement plans.
For example, if your AGI is too high you could lose all or part of the following tax breaks:
- Deductions for medical expenses, work expenses, student loan interest, total itemized deductions, and personal exemptions.
- Tax credits such as the child credit, Hope and lifetime learning credits, and dependent care credit.
- Ability to contribute to a Roth or Education IRA, or to deduct a traditional IRA contribution.
And that's just a partial list. That's why managing your AGI can be a smart move. Even a small reduction in AGI can sometimes qualify you for a bigger tax break.
Consider the following ideas to reduce AGI:
- Reduce taxable wage income by contributing to a 401(k) plan or a deductible IRA.
- If you're self-employed, manage income by delaying year-end invoices or accelerating purchases. Open a solo 401(k) plan to shelter income.
- Sell poorly performing investments to generate capital losses and offset investment gains. Evaluate investing in tax-exempt municipal bonds.
- Make sure you use all legitimate "above the line" adjustments, which directly reduce AGI. These include such items as student loan interest expense, self-employed health insurance deductions, health savings accounts, and moving expenses.
For suggestions on managing your AGI and an evaluation of the tax benefits, please contact our office.
Questions for our Financial Expert?
E-Mail us at:
finance@ClevelandSeniors.Com
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